International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Mergers and Acquisitions in the Banking Sector and Implications for Return on Equity (ROE): Evidence from Nigeria
Hassan Yusuf, Professor Aminu Diyo Sheidu

This study examines whether or not banks in Nigeria have experienced improvement in their Return on Equity ratio (ROE) following the wave of mergers and acquisitions that swept through the banking sector in 2004 - 2005. Basically, the study engaged in matched sample comparisons of the mean ROE ratios of the merged banks with the stand-alone banks before and after consolidation. Study data were obtained from the annual reports of the banks to compute mean ROEs of the banks across the period under study. Chow Structural Break tests, Paired Sample t-statistics and Independent Sample t-statistics were performed on the mean ROEs of the banks before mergers and the ROEs of consolidated banks. We obtained evidences that suggest that mergers and acquisitions (M & as) in the banking sector do not improve the Return on Equity ratios of the banks involved. This study thus, concludes that there is insignificant or no improvement in bank’s financial performance, (ROE) following consolidation. Therefore, we recommend based on our findings that participants in subsequent bank mergers must be prepared to be disappointed as most M & as have been and are still associated with results that are hardly consistent with pre-merger optimistic expectations. The implication for the operators in the banking sector is that pre-merger optimistic expectations are oftentimes not realistic; therefore, other strategies should be explored to shore up the fortunes of failing banks rather than embarking solely on M & A.

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